The Israeli Parliament (Knesset) Finance Committee recently approved, following a long legislative process, the Joint Investment Trust Regulations (Foreign Fund Unit Offerings), 2016 (the "New Regulations"). The New Regulations include a simple and convenient mechanism to enable large foreign mutual funds managers (the "Manager") to publicly offer units of a foreign fund (the "Fund") to retail clients in Israel, based on the filings and reports issued by such Manager in its country of origin, which can be submitted in English. Units can be offered upon receipt of approval from the Israel Securities Authority ("ISA"). Such offering can be made through local or foreign investments advisors and/or through the Tel Aviv Stock Exchange.
The New Regulations determine conditions under which the ISA may permit a public offering of units, provided that the offering guarantees the interests of Israeli investors and the units are offered in accordance with the approval of regulatory agencies in the state of origin.
According to the New Regulations, in order to be granted approval by the ISA to publicly offer the units of the Fund in Israel, certain criteria must be met, including:
- The Manager must manage no less than five funds that have been publicly traded for at least five years, with each such funds having assets with a total value of at least USD 500 million during the preceding two years;
- The total value of the assets and clients portfolios under management of the Manager, any person controlling the Manager and any entity controlled by such controlling person, must be at least USD 20 billion;
- The value of the Fund's net assets must be at least USD 50 million at the time of the request, and the units can be purchased in Europe or the United States for at least the preceding 12 months;
- If the Fund is a traded Fund, the offered units must be listed for trade in a foreign stock exchange;
- The Fund must operate under the U.S. Investment Company Act or the European directive UCITS;
- The Fund prices are published on an ongoing basis and are freely available online;
- The Fund cannot specialize in investments in Israel;
- The Manager must deposit a bank guaranty in favor of the ISA, issued by an Israeli bank, of no less than ILS 1 million (~USD264,000) (the "Guaranty Amount"), or deposit the Guaranty Amount or securities valued no less than the Guaranty Amount in an Israel bank deposit;
- The Manager must also deposit in an Israeli bank a cash deposit in favor of the unit holders in Israel in a sum between ILS 250,000 (~USD66,000) and ILS 12,000,000 (~USD3,168,000) or securities with such value, with the actual amount based on the value of units held by Israeli distributors;
- The Manager must appoint a representative in Israel to serve as a liaison between the Manager and the ISA and the unit holders in Israel. The representative can be either: (i) an Israeli Fund Manager; (ii) a foreign Fund Manager, a person who controls it, or a corporation under its control, if it has a branch in Israel, as long as he is fluent in the Hebrew language; (iii) a licensed corporation for marketing of investments or management of investment portfolios in Israel;
- The rights of a unit holder of a Fund, resulting from its holdings, purchased in Israel, shall be identical to the rights of every unit owner in the Fund.
The New Regulations will come into effect on November 5, 2016 and may very well revolutionize the Israeli mutual fund market with respect to funds that invest in securities outside of Israel.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.